A new effort by the leader of a congressional tax-writing committee to simplify the tax code might put wealthy taxpayers on the hook to pay more.
House Ways and Means Committee Chairman Dave Camp, R-Mich., on Wednesday introduced a
discussion draft of legislation that would overhaul the U.S. tax system by streamlining the current seven tax brackets — ranging from 10% to 39.6% — to two: 10% and 25%.
Mr. Camp's plan would eliminate and consolidate many tax deductions and other tax preferences, provide a more generous standard deduction of $11,000 for individuals and $22,000 for married couples and permanently repeal the alternative minimum tax. The plan is revenue neutral.
At a Capitol Hill news conference, Mr. Camp acknowledged that there had to be provisions in the draft legislation to pay for lowering rates for 99% of all Americans.
One way he did that is by imposing a 10% surcharge on some incomes of $450,000 or more. Those who are in farming and manufacturing, for instance, would pay a 25% top rate. Those in professional services, such as lawyers, would pay a 35% top rate.
That split didn't sit well with investment advisers.
“You are missing the point of tax reform if you start out with an approach like that,” said Timothy Dolan, managing principal of Dolan Capital Group. “You fail the test of fairness. You're coming out with a system that is singling out people to pay more.”
Martin Hopkins, president of Hopkins Investment Management, also blanched at the surtax.
“I'm very much a flat tax sort of person,” Mr. Hopkins said. “I don't agree with the concept of a progressive tax, of taxing the rich, but I understand that to get an agreement that benefits 90% of the population, you're going to have to throw it in there.”
RETIREMENT SAVINGS INCENTIVES WOULD CHANGE
Mr. Camp's plan also would change tax incentives for retirement savings.
The plan would freeze contribution limits for 401(k) plans at the current $17,500 for the next decade. It also would require that any contribution over $8,750 be channeled into a Roth 401(k) plan on which contributions were taxed going into the plan but could be withdrawn tax-free in retirement.
A summary of the tax reform plan said that 85% of retirement plan participants contribute less than $8,750 to plans annually, so they would not be affected by the change.
Timothy Steffen, senior vice president and director of financial planning at R.W. Baird & Co., Inc., cautioned that Roth plans don't satisfy everyone's retirement needs.
“Roth is a powerful savings tool, but it's not right for everybody,” Mr. Steffen said.
Overall, though, Mr. Steffen was impressed by the tax proposal. “It greatly simplifies the tax code,” he said. “If I were to design a tax plan, I would design something along these lines.”
Mr. Hopkins also endorsed the effort to prune the branches of the tax tree. “I'm encouraged by the fact that there is the intent to bring down tax rates for most people,” he said.
There's little chance that Mr. Camp's plan will be enacted this year. Senate Minority Leader Mitch McConnell, R-Ky., said earlier this week that Congress will not be able to complete comprehensive tax reform. On Wednesday, House Speaker John Boehner, R-Ohio, also cast doubt on the process.
Mr. Camp, who is stepping down as Ways and Means chairman at the end of the year, said that tax reform can't wait.
